The simple fact is: success breeds success.
This is why I firmly believe owning a basket of dividend-paying stocks as part of my overall investment plan is important. Month after month and quarter after quarter, success is bred by reinvesting most of my dividends paid from our stock holdings to buy more whole shares in the same established Canadian companies that have a long history of paying dividends. Rinse and repeat.
Lowell Miller expressed it nicely in his classic The Single Best Investment:
“Dividends and dividend growth are the real-life signal that a company has the wherewithal to pay you…it is the logical and inevitable result of investing in a company that is actually doing well enough, in the real world, to pay both dividends and to increase them on a regular basis. Dividends are paid from earnings. When a company has reached a certain level of maturity and stability, it begins paying dividends. What you see is what you get. Through the dividend, a company can show you how well it’s doing.”
Sure, not all dividend-paying companies are created equal. Sun Life Financial and other lifecos are struggling with this low interest rate environment. Canadian banks on the other hand are still making money, loads of it, off mortgages and car loans to name a few things and probably always will. These are leveraged businesses after all and leverage is risky. This is why it makes sense to be diversified across many different companies and sectors.
I’m slowly building a portfolio of 30+ Canadian dividend-paying stocks to compliment my predominantly indexed RRSP, and this two-pronged, a bunch of indexing here and dividend investing there, seems to be working. As of this month, I’m on pace to earn about $5,100 in dividend income this calendar year but almost all of that income is reinvested for more shares. That’s almost $700 more than this time last year.
Earlier this month, when the equity market skies were supposedly going to crash again amidst Greek banruptcy and the ongoing Eurozone crisis, I bought a new dividend-payer: First Capital Realty (FCR). Was I worried about the markets? A bit, but can I control the markets? No. What I can control is what I buy and when I buy it. What I can control is my emotional reactions to what markets are or are not really doing. I’m doing my best not to succumb to Mr. Market’s gyrations. Crises come and go and life goes on for so many of these established companies. FCR is an established company. FCR has decent and sustainable yield. FCR has good cash flow and strong earnings. Check, check and check some more.
In terms of achieving my goal of a stable, diversified basket of dividend-payers, I’m about halfway there. I’ve got a ways to go to diversify and many years of dividend investing ahead to get there. I’m confident in my strategy, buying established companies. I’m confident in my holdings and I’m confident, long-term, dividends will provide some secure passive income for us. Dividends aren’t everything but they are very nice indeed.
Hopefully next month I’ll have more good news to report.
Your turn readers…
Indexers and dividend investors, what do you think of my strategy?
Are you more of an indexer that shugs at dividend investing? If so, I want to hear from you!
Dividend investors, are you out there? If so, I want to hear from you too!